Customised credit cards have tough conditions

Credit card companies never tire of wooing customers. While customised credit cards are not new, mailers from credit card companies/banks projecting a whole lot of benefits from these cards are common.

Be it gifting needs, business requirements, cash back offers, rewards points, air-miles, fuel purchase, utility bills, exclusive privileges like access to airport lounges, discounts on dining and movie tickets or anything else, credit card companies have not left a single need for which there isn't a card. As a result, you come across individuals who own four-five credit cards for different purposes.

But should you be swayed by the claims of credit card companies? Are the cards really as useful as the issuers claim them to be? Let's find out.

For example, the IndianOil Citibank Platinum Credit Card claims to help you earn 30-40 litres of free fuel a year if you buy fuel from any IndianOil outlet. How? Not just fuel, you also save on other spends like grocery. So, according to the bank's illustration for a monthly fuel purchase of Rs 4,000, grocery or other household items worth Rs 3,000 and miscellaneous purchases of Rs 8,000 (total monthly expenses of Rs 15,000), you will earn around 2,400 turbo points per year. This translates into 30 litres of free fuel. One turbo point is equal to Rs 1 worth of fuel.

This card comes with a surcharge waiver worth Rs 100 and no annual fee.

This means in Delhi, you will earn 30 litres of petrol, Mumbai 27 litres and 29 litres each in Kolkata and Chennai. Close to Citibank's claim, except in Mumbai. According to the Indian Oil Corporation's website, petrol prices in Delhi stand at Rs 67.24 a litre, Kolkata Rs 74.55, Mumbai Rs 73.53 and Chennai Rs 70.57 starting November 16.

But if you use this card only for purchasing fuel, then with a monthly expense of Rs 4,000 or Rs 48,000 a year, you will earn only 480 turbo points. This means you can save money worth 7 litres of petrol in Delhi, 6.75 litres in Chennai and 6.5 litres each in Kolkata and Mumbai.

Those with a higher monthly bill of say Rs 33,000 (petrol = Rs 8,000, grocery = Rs 15,000 and miscellaneous = Rs 10,000), would earn close to 5,300 turbo points a year. This translates to 78 litres of petrol in Delhi, 75 litres in Chennai, 72 litres in Mumbai and 71 litres in Kolkata. And if you use the card only to buy fuel, you save for as much as 19 litres of petrol in Delhi, 18 litres in Chennai and 17 litres each in Mumbai and Kolkata.

All this is good till you pay the bill on time. In case you are a credit revolver - one who pays the minimum amount payable on his/her credit card outstanding within the due date - then avoid the product.

Lets take the first example forward. We assume that your monthly card bill is Rs 4,000 (used only to buy fuel), interest charged by your card company is 2.5 per cent a month and you pay at least five per cent of the due amount every month.

In the first month, you pay Rs 200 towards your card bill. Your bill is Rs 7,800 (Rs 3,800 + 4,000) in the second billing month and you are charged an interest of Rs 195. From this, you pay around Rs 400 to the card company, the dues will be Rs 7,595.25. Similarly, you keep paying five per cent of the bill amount every month which keeps compounding with an interest charge of 2.50 per cent monthly. At the end of the year you will have spent over Rs 7,000 as against a gain of Rs 480 or 480 turbo points.

"Such cards are meant for those who travel with their own vehicles and also for high spenders, as the conversion to fuel will be a big benefit. However, users of this card should also be those who pay their bills upfront and do no carry it forward," says Abhinav Angirish of InvestOnline.in.

Remember, such cards are useful only at the partner's outlet, in this case Indian Oil stations, which can be a bit tough when your fuel tank is running low. Additionally, according to Citibank, the benefit of turbo points with the fuel surcharge waiver is applicable only on Citibank machines. If you swipe your card on any other machine, you would not get any turbo points and the surcharge is also applicable at 2.50 per cent per transaction. So, for a refill of Rs 300 at an Indian Oil outlet without a Citibank machine will charge you around Rs 8 extra, says a public sector banker who uses this card.

The card fee waiver also has a threshold mostly, where you need to spend at least Rs 30,000 or more annually for it. Else, a fee of Rs 1,000 will be applicable. You can encash the turbo points only after you've accumulated at least 200 points. This translates into opting for an Indian Oil outlet with Citibank machines for around 50 transactions of Rs 150 each and spending Rs 7,500.

Do the math before you go in for a new credit card, not after you've used it.